Corporate Pension Deficits in January Highest Since 2012

The
estimated aggregate funding level of pension plans sponsored by S&P 1500
companies decreased from 79% as of December 31, 2014, to 74% as of January 31,
2015, according to Mercer.

Sharp
decreases in interest rates used to calculate corporate pension plan liabilities,
coupled with losses in equity markets, brought funded status down by 5%. Gains
in the fixed-income market were not enough to offset increases in liabilities.
The estimated aggregate deficit of $654 billion as of January 31 increased
$150 billion from $504 billion at the end of 2014—reaching the highest level
since 2012, Mercer says.

“Not
the start to the year that plan sponsors were hoping to see,” says Jim Ritchie,
a principal in Mercer’s retirement business.
“After a 9% drop on average in 2014, sponsors are hit with a further 5%
drop right out of the gate in 2015. The continued volatility in fixed income
and equity markets, as well as the expected improvements in mortality, together
make risk transfers a more attractive strategy in 2015. While many plan
sponsors settled their liabilities with former vested employees in 2014, more
will likely consider settling their liabilities with active employees and
retirees in 2015. There is an unprecedented opportunity in 2015 for many plan
sponsors to terminate their pension plans at a discount to accounting
liabilities.”

According to Mercer,
the estimated aggregate value of pension plan assets of the S&P 1500
companies as of December 31, 2014, was $1.89 trillion, compared with estimated
aggregate liabilities of $2.39 trillion. Allowing for changes in financial
markets through January 31, 2015, changes to the S&P 1500 constituents, and
newly released financial disclosures, at the end of January the estimated
aggregate assets were $1.90 trillion, compared with the estimated aggregate
liabilities of $2.55 trillion.